Efficiency Measurement in: Branch Bank Service with Data Envelopment Analysis

Efficiency Measurement in: Branch Bank Service with Data Envelopment Analysis

Qing Cao (Texas Tech University, USA), Karyl B. Leggio (Loyola University Maryland, USA) and Marc J. Schniederjans (The University of Nebraska, USA)
DOI: 10.4018/jisss.2012040101
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Abstract

Banking is a competitive market since the industry deregulated. Consumers’ demand for convenience services led to an increase in the number of branches to serve a geographically dispersed customer base. Increasing the number of branches indiscriminately is not advisable since more branches increase the cost structure for the bank. Banking executives can evaluate the relative efficiency of branches, segments, and markets using analytical tools such as DEA. This research assists the branch manager with understanding the efficiency of branches and segments using two alternative intermediation models and a profit model. The results show that large markets are more efficient than small or rural markets, and large segments are generally more efficient than small market segments. The methodology employed in this study allows branch managers to proactively work to improve efficiency and control costs by adjusting inputs within the manager’s control, whether efficiency is measured based on profit models or the intermediation models.
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Review Of Literature

The term “banker’s hours” did not originate due to the tremendously long days bankers worked. Rather, during the regulated days of banking, this monopolistic industry set short operating hours available for customers to conduct banking business. That changed with the advent of deregulation and competition. During the 1980’s, banks were allowed to cross state lines thus breaking down the geographic constraint on competition. International banks began operating in the U.S. financial intermediaries and other financial institutions began competing with traditional commercial banks. Increased competition was a major impetus for change in the industry.

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